They'll decrease only when they reassess. The state decides when they want to do that. I bet they're running full tilt trying to reassess everyone before prices start going down:-)
It's worse for people who stretched to buy a house using an ARM or negative amortization loan. As rates on the ARMs reset over the next few years some of these folks won't be able to afford the new payments at current rates. The rates could drop precipitously, but that would hurt the purchasing power of the dollar and spark price inflation. Property taxes will contribute more to the carrying costs of a house as they are reassessed at higher rates.
To make things worse the government is enacting new tougher lending standards to curb some of the crazy lending practices, so some these folks may be stuck with their ARMs.
So, all those people who've been using their home equity as an ATM machine. Essentially, borrowing against the increased value of their house to fund consumption, won't be able to continue with the buying spree. All those people who stretched too far to buy a house they couldn't afford may be dumping them on the banks that shouldn't have lent them the money in the first place. The banks will be forced to sell the houses at firesale prices further driving down prices and exacerbating the problem.
This is the nightmare scenario, as usual the most likely scenario is something in between "everything will be just fine" and the "world is coming to an end."
Consumer spending makes up 65-70% of the country's GDP at the moment. So, it's very important.
I agree that the scenario you describe is a possibility if you extrapolate the current trend into the future in a straight line. But, if we really we're headed into a hyperinflationary depression wouldn't it be wise to take on as much debt as possible and then pay it off with cheaper dollars later. You could pay off your mortgage in year 2000 dollars for the cost of a loaf of bread in 2015 dollars. That would destroy the banking system, though, so it probably will not come to that because the big banks have a lot of control over the Fed. The Fed has to buy government backed securities from the banks to get money into circulation, as far as I understand they can't just print it. But, there's always Bernanke's helicopters, I guess.
I do run a business, but I'm a one man LLC, so I pay more taxes than most people. About 50% when you include the full share of FICA, Medicare, Social Security, income tax, state tax, city tax, NYC unincorporated business tax and probably a few others I forgot. I even have to pay mandatory unemployment insurance for myself, even though state law says that if I fired myself I couldn't collect:-)
I don't have withholding, so I see exactly how much of my money is going out the window every quarter. Not to mention the money I spend on my tax guy every year, and the weird stuff that he recommends that I do, because my decisions have tax ramifications.
I'm really not being coy. I do believe the premise that you can't really tax a corporation. Besides the fact that they can move offshore and many have, you have the fact that taxes paid to the government means less money to shareholders and a higher price for consumers. So, they pass the cost onto the consumer or shareholder eventually.
So, I don't believe that what is good for corporations is necessarily bad for us. Perhaps, you're right and I need to look deeper, I was just hoping someone else would do the hard work for me and present a convincing argument against it.
The part where he appears to be talking about the current system, which gives him a lower tax rate on dividends and capital gains and actually has nothing to do with a flat tax. If we had a regressive flat tax where everyone paid the same rate then Buffet couldn't say his employees paid a higher rate.
Or, we could institute a progressive flat tax where people paid higher rate the more money the make, as long as it was simple with no exceptions. The problem is that there is a huge cost to the economy to comply with the current system. A lot of money gets poured down non-productive alleys.
Anyway, I didn't feel that the quote was very convincing.
The FairTax premise is that there's a 23% embedded cost in everything we buy due to the cost of compliance with the current tax code. If you buy this premise (I'm still not sure that I do) then when that cost is removed market forces will cause everything to be 23% cheaper in a short amount of time. So, after tacking on the Fairtax, you actually won't have to pay any more than you're paying now, but you will be keeping more of your paycheck, so it will actually increase your purchasing power. If you buy their premise, it makes sense.
You're right about the Fairtax really being 30%. But as I understand it, they claim that the embedded cost of the current tax system is 23%. That means if Mars sells a candy bar at its cost of $1 and 23 cents of the cost is due to taxes, if the embedded tax cost is removed then the candy bar would eventually sell for 77 cents. Add the FairTax of 30%, which comes to 23 cents and the candy bar still costs the consumer $1. So, it really doesn't matter how they slice it, if they're right about the %23 embedded cost of the current tax system the result is the same. The consumer will pay the same price for everything after the FairTax that they did before the FairTax.
As far as blackmarkets go, there'd probably be as many participants in that as there are tax cheats. Which is a lot. They'd probably be treated just like tax cheats are today. Except the simple fact is, it would be very easy for you and I to know if we were breaking the FairTax law. It's not so simple with the current tax code.
As far as privacy implications, one could just as easily argue that the only thing the govt. has to audit would be the merchants. They'd have to make sure that what comes in is taxed when it leaves. I would assume that states already have some process in place for that. Perhaps not, but it doesn't have to result in some Orwellian surveillance society. I don't think the IRS would go away entirely.
As far as lobbyists go, sure they could still lobby the government for exceptions. But, any attempt to change a tax code that would fit on a 8.5x11 sheet of paper, and in 10 point font to boot, would draw alot more attention than the 8000 pager we have today. It sorts of takes away one of the tools politicians use to curry favor with their big contributors.
Despite its problems, the fairtax could significantly lower the cost of doing business in this country which should bring back some of the manufacturing jobs. But, it will probably never get implemented because the age of America as The Great Experiment is over. It's not like a single state could implement something like this on a smaller scale and then if it worked other states could adopt it. Because everything is more or less controlled by the Feds, it'd be one huge disaster if it didn't work. So, no one will try.
If it was an American car, according to what I've read, the "theory" is that because of the removal of the 23% embedded tax that results from the current tax system, the before tax price of car would actually be 23% less, when you add the fairtax in, it would be the same. So, a $150,000 car now, would still be a $150,000 car after the FairTax.
As far as people buying foreign cars, there would still be import taxes. Also, with the cost of doing business in America becoming 23% less expensive due to the elimination of payroll taxes, American goods should be cheaper to export than most foreign made goods. Companies in other countries would also want to take advantage of American productivity at the new 23% cheaper rate and would probably start building factories here again.
Am I wrong or do people seem to be missing the part of the Fairtax argument that deals with the 23% "embedded" cost of the current tax system. It really is the crux of the argument. Everything hinges on it.
I really want to understand why a lot of people really hate this idea.
I do understand why it will probably never get implemented. If everything doesn't go according to plan, we could really screw ourselves over. Whatever happened to America the great experiment, when states had more control over their policies, and these things could be adopted at a state level and not risk failure on a grand scale. Actually, that was rhetorical. I know what happened to it.
One of the reasons why I like the FairTax is that it takes away a few of the games the politicians can play to repay their big campaign contributors for putting them in office. Oddly enough the Buffet quote you highlighted doesn't seem to illustrate his opposition to a flat tax, but his opposition to special taxation categories, like capital gains and dividends, set up by politicians to benefit their high-dollar campaign contributors. These favored categories wouldn't exist under a the FairTax or flat tax scenario.
To me the FairTax is just that, "fair." Any spending up to the poverty line is essentially exempt from taxes. Everyone, not just poor people would receive a check in the mail every month to rebate the taxes they paid on all essential items. If you choose to consume beyond what is generally agreed on as essential, then you pay the tax.
In the meantime, everyone, gets to take home more of their paychecks and you and I get to choose where that money goes, not the government. If the essentials are tax-exempt, how is it unfair to tax people when they buy a TV, or a DVD player, iPod, whatever?
How does that benefit the rich any more than it benefits the middle class, or the poor? When a rich guy buys a 150,000 car they have to pay the tax, just like me when I buy my 15,000 car, or a $400 MP3 player.
Besides, the theory goes, that with the 23% embedded tax burden removed, even with the added sales tax, we would be paying the same price for non-essentials as we were before the FairTax. So, we pay the same price for things, but we have more of our paychecks to buy things with. That sounds good to me. So, if you're going to attack anything attack the embedded tax premise.
Under the current system a lot of rich folks' money sits legally untaxed in offshore trusts. So, the "soak the rich" mentality only ends up hurting people who can't take their money offshore and/or those who don't receive most of their income through passive investment, namely the middle class.
The weak point to the FairTax as I see it, is the relative leap of faith required that the embedded tax burden is actually 23%, and the all or nothing implementation it requires. It also would discourage the purchase of new items in favor of used items, because used items have already been taxed, they aren't taxed again. Encouraging conservation in our current economic system could be problematic.
If anyone can explain to me why this would only benefit the rich, I would like to hear it. I'd like a reason to maintain the status quo, it's easier that way, right?
I also live in Vermont and have for the last 8 years. I have a lot of respect for Dean. I didn't think he had a chance at first, but his candidacy seems to be gaining ground.
One of the things I like about him is that every week he'd appear on a public radio call-in show called "Switchboard". It ended up being a kind of town meeting where Vermonters could air grievances, offer praise and talk about issues with the governor. He discussed the issues rationally and with a lot of clarity. He knows what he's talking about and doesn't require sticking to a script to get his point across.
Check out his stance on the issues.
His political views are not just empty "mom and apple pie" rhetoric, he has made good on most of his promises to the people of Vermont.
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They'll decrease only when they reassess. The state decides when they want to do that. I bet they're running full tilt trying to reassess everyone before prices start going down :-)
It's worse for people who stretched to buy a house using an ARM or negative amortization loan. As rates on the ARMs reset over the next few years some of these folks won't be able to afford the new payments at current rates. The rates could drop precipitously, but that would hurt the purchasing power of the dollar and spark price inflation. Property taxes will contribute more to the carrying costs of a house as they are reassessed at higher rates. To make things worse the government is enacting new tougher lending standards to curb some of the crazy lending practices, so some these folks may be stuck with their ARMs. So, all those people who've been using their home equity as an ATM machine. Essentially, borrowing against the increased value of their house to fund consumption, won't be able to continue with the buying spree. All those people who stretched too far to buy a house they couldn't afford may be dumping them on the banks that shouldn't have lent them the money in the first place. The banks will be forced to sell the houses at firesale prices further driving down prices and exacerbating the problem. This is the nightmare scenario, as usual the most likely scenario is something in between "everything will be just fine" and the "world is coming to an end." Consumer spending makes up 65-70% of the country's GDP at the moment. So, it's very important.
I agree that the scenario you describe is a possibility if you extrapolate the current trend into the future in a straight line. But, if we really we're headed into a hyperinflationary depression wouldn't it be wise to take on as much debt as possible and then pay it off with cheaper dollars later. You could pay off your mortgage in year 2000 dollars for the cost of a loaf of bread in 2015 dollars. That would destroy the banking system, though, so it probably will not come to that because the big banks have a lot of control over the Fed. The Fed has to buy government backed securities from the banks to get money into circulation, as far as I understand they can't just print it. But, there's always Bernanke's helicopters, I guess.
I do run a business, but I'm a one man LLC, so I pay more taxes than most people. About 50% when you include the full share of FICA, Medicare, Social Security, income tax, state tax, city tax, NYC unincorporated business tax and probably a few others I forgot. I even have to pay mandatory unemployment insurance for myself, even though state law says that if I fired myself I couldn't collect :-)
I don't have withholding, so I see exactly how much of my money is going out the window every quarter. Not to mention the money I spend on my tax guy every year, and the weird stuff that he recommends that I do, because my decisions have tax ramifications.
I'm really not being coy. I do believe the premise that you can't really tax a corporation. Besides the fact that they can move offshore and many have, you have the fact that taxes paid to the government means less money to shareholders and a higher price for consumers. So, they pass the cost onto the consumer or shareholder eventually.
So, I don't believe that what is good for corporations is necessarily bad for us. Perhaps, you're right and I need to look deeper, I was just hoping someone else would do the hard work for me and present a convincing argument against it.
The part where he appears to be talking about the current system, which gives him a lower tax rate on dividends and capital gains and actually has nothing to do with a flat tax. If we had a regressive flat tax where everyone paid the same rate then Buffet couldn't say his employees paid a higher rate.
Or, we could institute a progressive flat tax where people paid higher rate the more money the make, as long as it was simple with no exceptions. The problem is that there is a huge cost to the economy to comply with the current system. A lot of money gets poured down non-productive alleys.
Anyway, I didn't feel that the quote was very convincing.
The FairTax premise is that there's a 23% embedded cost in everything we buy due to the cost of compliance with the current tax code. If you buy this premise (I'm still not sure that I do) then when that cost is removed market forces will cause everything to be 23% cheaper in a short amount of time. So, after tacking on the Fairtax, you actually won't have to pay any more than you're paying now, but you will be keeping more of your paycheck, so it will actually increase your purchasing power. If you buy their premise, it makes sense.
You're right about the Fairtax really being 30%. But as I understand it, they claim that the embedded cost of the current tax system is 23%. That means if Mars sells a candy bar at its cost of $1 and 23 cents of the cost is due to taxes, if the embedded tax cost is removed then the candy bar would eventually sell for 77 cents. Add the FairTax of 30%, which comes to 23 cents and the candy bar still costs the consumer $1. So, it really doesn't matter how they slice it, if they're right about the %23 embedded cost of the current tax system the result is the same. The consumer will pay the same price for everything after the FairTax that they did before the FairTax.
As far as blackmarkets go, there'd probably be as many participants in that as there are tax cheats. Which is a lot. They'd probably be treated just like tax cheats are today. Except the simple fact is, it would be very easy for you and I to know if we were breaking the FairTax law. It's not so simple with the current tax code.
As far as privacy implications, one could just as easily argue that the only thing the govt. has to audit would be the merchants. They'd have to make sure that what comes in is taxed when it leaves. I would assume that states already have some process in place for that. Perhaps not, but it doesn't have to result in some Orwellian surveillance society. I don't think the IRS would go away entirely.
As far as lobbyists go, sure they could still lobby the government for exceptions. But, any attempt to change a tax code that would fit on a 8.5x11 sheet of paper, and in 10 point font to boot, would draw alot more attention than the 8000 pager we have today. It sorts of takes away one of the tools politicians use to curry favor with their big contributors.
Despite its problems, the fairtax could significantly lower the cost of doing business in this country which should bring back some of the manufacturing jobs. But, it will probably never get implemented because the age of America as The Great Experiment is over. It's not like a single state could implement something like this on a smaller scale and then if it worked other states could adopt it. Because everything is more or less controlled by the Feds, it'd be one huge disaster if it didn't work. So, no one will try.
If it was an American car, according to what I've read, the "theory" is that because of the removal of the 23% embedded tax that results from the current tax system, the before tax price of car would actually be 23% less, when you add the fairtax in, it would be the same. So, a $150,000 car now, would still be a $150,000 car after the FairTax.
As far as people buying foreign cars, there would still be import taxes. Also, with the cost of doing business in America becoming 23% less expensive due to the elimination of payroll taxes, American goods should be cheaper to export than most foreign made goods. Companies in other countries would also want to take advantage of American productivity at the new 23% cheaper rate and would probably start building factories here again.
Am I wrong or do people seem to be missing the part of the Fairtax argument that deals with the 23% "embedded" cost of the current tax system. It really is the crux of the argument. Everything hinges on it.
I really want to understand why a lot of people really hate this idea.
I do understand why it will probably never get implemented. If everything doesn't go according to plan, we could really screw ourselves over. Whatever happened to America the great experiment, when states had more control over their policies, and these things could be adopted at a state level and not risk failure on a grand scale. Actually, that was rhetorical. I know what happened to it.
One of the reasons why I like the FairTax is that it takes away a few of the games the politicians can play to repay their big campaign contributors for putting them in office. Oddly enough the Buffet quote you highlighted doesn't seem to illustrate his opposition to a flat tax, but his opposition to special taxation categories, like capital gains and dividends, set up by politicians to benefit their high-dollar campaign contributors. These favored categories wouldn't exist under a the FairTax or flat tax scenario.
To me the FairTax is just that, "fair." Any spending up to the poverty line is essentially exempt from taxes. Everyone, not just poor people would receive a check in the mail every month to rebate the taxes they paid on all essential items. If you choose to consume beyond what is generally agreed on as essential, then you pay the tax.
In the meantime, everyone, gets to take home more of their paychecks and you and I get to choose where that money goes, not the government. If the essentials are tax-exempt, how is it unfair to tax people when they buy a TV, or a DVD player, iPod, whatever?
How does that benefit the rich any more than it benefits the middle class, or the poor? When a rich guy buys a 150,000 car they have to pay the tax, just like me when I buy my 15,000 car, or a $400 MP3 player.
Besides, the theory goes, that with the 23% embedded tax burden removed, even with the added sales tax, we would be paying the same price for non-essentials as we were before the FairTax. So, we pay the same price for things, but we have more of our paychecks to buy things with. That sounds good to me. So, if you're going to attack anything attack the embedded tax premise.
Under the current system a lot of rich folks' money sits legally untaxed in offshore trusts. So, the "soak the rich" mentality only ends up hurting people who can't take their money offshore and/or those who don't receive most of their income through passive investment, namely the middle class.
The weak point to the FairTax as I see it, is the relative leap of faith required that the embedded tax burden is actually 23%, and the all or nothing implementation it requires. It also would discourage the purchase of new items in favor of used items, because used items have already been taxed, they aren't taxed again. Encouraging conservation in our current economic system could be problematic.
If anyone can explain to me why this would only benefit the rich, I would like to hear it. I'd like a reason to maintain the status quo, it's easier that way, right?
I also live in Vermont and have for the last 8 years. I have a lot of respect for Dean. I didn't think he had a chance at first, but his candidacy seems to be gaining ground.
One of the things I like about him is that every week he'd appear on a public radio call-in show called "Switchboard". It ended up being a kind of town meeting where Vermonters could air grievances, offer praise and talk about issues with the governor. He discussed the issues rationally and with a lot of clarity. He knows what he's talking about and doesn't require sticking to a script to get his point across.
Check out his stance on the issues. His political views are not just empty "mom and apple pie" rhetoric, he has made good on most of his promises to the people of Vermont.